REPORT : Stop Immoral Drug Price Increases

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First, it was Valeant Pharmaceuticals and its 300% and 700% price hikes on two crucial heart medications.

Then, it was Turing Pharmaceuticals and its 5,455% price increase on a lifesaving anti-parasitic medicine.

And now, it’s Mylan and its 548% boost in the prices of EpiPens, meaning people with severe allergies may not be able to afford the tools that keep them alive.

It’s become a familiar dance: A drug company buys a well-established medication developed by another company. It raises the price by an obscene amount.

More than two-thirds of the 20 biggest pharma companies used price hikes to drive revenue growth in the first quarter of 2016, according to an analysis of corporate filings and earnings statements by the Wall Street Journal.

The review also found that drugmakers have been relying on this tactic more and more and raising prices by higher amounts than before despite multiple Congressional inquiries into the practice and proposed reforms to tackle drug costs from President Obama, Hillary Clinton, Donald Trump, and others.

Some of the most notable price increases were lodged by companies like Pfizer, which raised U.S. prices for more than 100 drugs at the beginning of the year; Biogen ; and Amgen.

For example, Amgen admitted that a 24% boost in first-quarter sales for its flagship anti-inflammatory drug Enbrel was largely attributable to a higher “net price” for the medication, meaning the price after discounts and rebates to insurers are taken into account.

Popular Biogen treatments like Avonex, Tysabri, and the multiple sclerosis therapy Tecfidera also owed sales growth to a combination of price increases and stronger volume.

Drugmakers often argue that drug price hikes are standard industry practice meant to recoup money for past and future R&D, and that high list prices are misleading since they don’t consider discounts and rebates.

But the fact that net prices have been on the rise puts a bit of a dent into that argument.

“Companies are very fond of saying, ‘No, no, don’t pay any attention to list price increases,’” Leerink Partners analyst Geoffrey Porges told the Journal.

“The industry sort of hiding behind that is really a diversionary tactic.”

Take, for instance, the generic-drug maker Mylan.

The purpose of generic-drug companies, of course, is to come up with inexpensive versions of branded drugs that they can sell once the patent expires on the name-brand product.

Indeed, the famous Hatch-Waxman Act of 1984, which is the foundational document of the modern generics industry, specifically gave companies incentives to get cheaper drugs on the market quickly.

For example, companies that successfully challenged drug patents in court could get a six-month head start before any other company could sell its own generic version.

But as generics companies like Mylan became giants themselves — Mylan’s market cap was $26.5 billion at the end of 2015, more than twice what it was three earlier — their goal shifted from selling drugs as cheaply as possible to selling them as expensively as they could get away with. And doing whatever else they had to do to generate revenue.

Everyone knows about EpiPen, which Mylan bought in 2007 and transformed from a $200-million-a-year product into a $1.1-billion one largely by quadrupling the price.

Though the EpiPen price hikes have resulted in government investigations, it’s really just a classic example of the “because they can” strategy.

But over the last few weeks, Mylan has been in the news for litigation involving two other drugs: Provigil, which treats narcolepsy and is marketed by the Israeli generics giant Teva, and Copaxone, a drug used by multiple sclerosis patients that is marketed by, hmmm, Teva.

 Provigil was approved by the U.S. Food and Drug Administration in the late 1990s and went on sale as a branded drug. By the mid-2000s, its patent was nearing expiration, which meant that the generics companies were gearing up to sell a version of the drug at a much lower price.

To prevent that from happening, Cephalon, which held the Provigil patents, sued four generics companies, including Mylan and Teva, for patent infringement.

That’s when things got fishy. Cephalon agreed to pay the four companies some $300 million — and they agreed to keep generic Provigil off the market for another six years.

In other words, consumers, insurance companies and pharmacies would have to keep paying an exorbitant price for drug that, by all rights, should have been available in a less expensive form.

Indeed, with no generics competition, Cephalon was able to turn Provigil into a billion-dollar-a-year drug by 2012. Seven years earlier, it had reaped $475 million in annual revenue.

There is a name for this tactic: pay-for-delay. Although the U.S. Supreme Court has been ambiguous about its legality, the U.S. Federal Trade Commission considers it an antitrust violation.

Thus, in the FTC’s view, Cephalon, Mylan, Teva and the other generics companies were co-conspirators rather than true litigants.

So the FTC sued Cephalon. And a group of pharmacy companies, including CVS Caremark and Eckerd, sued the generics companies.

The litigation lasted for over a decade, during which time much changed.

In 2011, Teva bought Cephalon, which means it was suddenly the marketer of branded Provigil.

The following year, generic Provigil finally arrived on the market.

But Teva was ready.

It had a new branded drug, Nuvigil (New-vigil. Get it?). Although the chemical difference between the two drugs is small, Teva sold Nuvigil as an improvement over Provigil.

In 2015, Teva finally put the case behind it, paying $1.2 billion to settle with the FTC, an amount that included its own liability as well as Cephalon’s.

The Mylan news, which broke last week, was that it was putting the case behind it too, with a settlement of $96.5 million.

The company said the settlement was “not an admission of wrongdoing,” and that may be. But there’s little doubt that Mylan was paid to delay a generic drug, and as a result, Cephalon and Teva were able to squeeze billions out of Provigil at the expense of medical consumers.

If Mylan is one of the bad guys in the Provigil litigation, it plays the role of the good guy in the Copaxone case — it’s the generic-drug maker fighting to bring to market a less expensive version of a costly branded drug.

Copaxone, which is sold by Teva, is an injectable medicine used by people with multiple sclerosis.

When Copaxone was first approved by the FDA in 1997, it annual cost was $8,282. Today, it’s nearly $85,000, and generates a fifth of Teva’s $20 billion in revenue, according to Bloomberg.

If pay-for-delay is one way to extend the life of a patent on a branded drug, there are plenty of other ways as well.

For instance, in 2015, with the patent on the original 20-milligram-dosage version of Copaxone having expired, Sandoz came out with a generic. (Its “discounted” annual cost is $65,000.)

What did Teva do?

It got approval for a branded version administered in 40-milligram injections. Which meant fewer injections for patients. Which meant most Copaxone users switched to the Teva drug, which currently costs some $74,000 a year.

At which point, Mylan stepped in with its own 40-milligram generic Copaxone. Needless to say, Mylan and Teva wound up in court arguing over whether the Teva patents were valid.

A few weeks ago, a federal judge ruled in Mylan’s favor. Although Teva has vowed to appeal, it might not be too long before Mylan can offer generic Copaxone.

This would be a terrible outcome for Teva, but a good outcome for multiple sclerosis patients.

Well, sort of. You see, when you undercut a $74,000-a-year drug, you can still make an awful lot of money, even after you’ve undercut the branded price.

Which is another one of the games pharma plays: develop expensive generics, not cheap ones.

But that’s a column for another day.

Speaking of real life, the social situation succumbs to the power of lobbies of the pharmaceutical companies.

For example, all hospitals must necessarily buy medicine.

In 2015, we saw an unexpected increase in drug costs of $42 million.

But the impact to society is not limited to hospitals and patients.

Everyone feels it, including insurance companies, employers, employees, the government and taxpayers—in other words, all of us.

Even those who are healthy and medication-free pay more when drug prices outpace inflation.

How to fix the problem ? 

Ban direct-to-consumer advertising. Why do drug companies spend so much more on marketing than they do on research and development? Because advertising works.

The American Medical Association and the American Society of Health-System Pharmacists have endorsed banning direct-to-consumer advertising because it leads to the over-prescribing of expensive drugs when more cost-effective options often exist.

(Only two countries allow direct-to-consumer advertising—the U.S. and New Zealand, whose residents happen to take significantly more prescription drugs than those in comparable countries.)

Drug companies spent $5.4 billion on direct-to-consumer ads in 2015, an increase of 19 percent over 2014. In fact, five of the ten fastest-growing ad spenders in 2015 were pharma companies, according to Ad Age.

Valeant spent $441 million on advertising in 2015 on drugs like Jublia, a $500-per-bottle drug for toenail fungus that has a total course-of-treatment cost of $20,000.

Direct-to-consumer drug advertising is not a constitutional right.

We haven’t always had drug ads. FDA relaxed the rules in 1999 creating the deluge of ads we see today.

These regulations should be rescinded in light of the negative cost impact to society.

Eliminate “pay-to-delay” payments. When a brand-name drug’s patent is about to expire, competing manufacturers begin to consider making a generic alternative, which will cost less than the brand-name drug and cut into its profits.

To stop that from happening, the manufacturers of brand-name drugs will pay the generic manufacturers to not produce a generic version. It should not be legal to crush competition and manipulate the market in this way.

Pass the Creating And Restoring Equal Access To Equivalent Samples Act Act of 2016. Competition in the marketplace is a critical part of managing drug prices. However, competition has been stifled by the holders of certain patent-protected drugs.

The CREATES Act requires manufacturers of brand-name drugs to provide the required samples of their products to generic manufacturers, allowing them to conduct studies demonstrating the equivalence of the generic version.

This would allow generic versions of these drugs to get to market faster after the patent protection ends, creating a competitive market.

Allow some drug imports when companies egregiously raise prices. This is another means of creating competition—and it can still require the FDA to allow drug importation to hospitals through existing supply chains, as long as FDA’s quality standards are met.

Eliminate patient assistance co-pay cards. Pharmaceutical companies offer these cards to patients to help reduce their out-of-pocket expenses.

While this may sound like a good thing, the real purpose is to direct patients to higher-cost branded drugs as opposed to using much cheaper alternatives.

Eliminating a co-pay saves patients’ money but shifts the payment burden to insurance companies, which is eventually passed on to consumers.

After being grilled and shamed at congressional hearings, Valeant responded to its 718% increase and promised customers like us a 30% discount.

To date, it never happened. And even if it does, a 30% discount after a 700% price increase doesn’t seem like an even trade-off to me.

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